Dan Walters writes for CALmatters, a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.

Dan Walters: Building California housing is expensive, and two bills would make it even costlier

A 2015 building project on Big Ranch Road added 17 homes to a neighborhood in north Napa.

J.L. Sousa, Register file photo

Dan Walters writes for CALmatters, a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.

California obviously has a severe shortage of housing, but the crisis is felt most acutely by low- and moderate-income families.

“Approximately half of all California households are spending more than 30 percent of their income on housing costs, and nearly one‑third of all California households are spending more than 50 percent of income on housing costs,” Gov. Jerry Brown declares in his budget summary.

However, as he and legislators try to make good on their promise to ease the crisis, one inescapable fact looms large: Low-cost housing isn’t low cost.

The same budget document points out that on average, “affordable housing” costs $332,000 per unit to construct – ranging from $591,000 in San Francisco to $207,000 in Kings and Tulare counties.

California is falling about 80,000 units short of the 180,000 units it needs to build each year, according to Brown’s housing department. Therefore, increasing construction by 80,000 affordable units annually would cost an additional $26 billion.

The Legislature’s budget analyst, Mac Taylor, calculates that 1.7 million California households spend more than half of their income on housing and building new, lower-cost units for them would require a public subsidy of about $165,000 for each in coastal urban areas, with the remainder coming from private and non-profit investors.

“At this cost,” the report continues, “building affordable housing for California’s 1.7 million rent burdened low-income households would cost in excess of $250 billion. This cost could be spread out over several years (by issuing bonds or providing subsidies to builders in installments), requiring annual expenditures in the range of $15 billion to $30 billion.”

A couple of real-world projects validate the numbers.

One, developed by Mercy Housing in San Francisco, provides 150 new apartments for $489,000 a unit – $100,000 under the city’s average. Almost all of the money came directly from government sources, or indirectly through tax credits.

The second, now under construction in Roseville, a suburb of Sacramento, and also developed by Mercy Housing, will provide 58 new downtown apartments for $370,000 per unit. Similarly, financing is coming largely from city and state governments and tax credits.

Two observations emerge from these data:

–While the Capitol’s politicians are beating the drums for either new taxes, such as a proposed levy on real estate transactions, or bonds to address the housing issue, both would be tokenism. There’s no way the state can supply the immense sums needed, such the $250 billion cited by Taylor.

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–Therefore, the primary focus of a housing package should be on reducing red tape, particularly at the local level, to make it easier and less costly for both private and non-profit investors, such as Mercy Housing, to fill the need.

However, while it would bulldoze local governments into approving new affordable housing, one provision would, if anything, increase its costs by virtually mandating the use of more expensive union construction labor – even treating private projects as if they were public works.

Another pending measure, Assembly Bill 199 by Assemblyman Kansen Chu, D-Milpitas, would declare any housing in a local redevelopment area, regardless of its financing, to be public works and also subject to the “prevailing wage” rule that effectively mandates unionized labor.

Obviously, both are supported by construction trades unions, which wield substantial influence on the Legislature’s dominant Democrats. But both, if enacted, would probably mean fewer units being built for the “rent-burdened low-income families’ cited in Taylor’s report.

The political tradeoff is obvious.

CALmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.

More information

With all the recent hoopla about California’s record-low unemployment rate and the heady prospect of its becoming No. 5 in global economic rankings, it is easy to lose sight of another salient fact: It is the nation’s most poverty-stricken state.